Will the UK learn lessons of investing in fragile states?

The bill on the UK development finance institution, CDC, has taken many by surprise.

The new parliamentary bill that increases the amount of aid that can be channeled through the institution from £1.5bn to £6bn, with an option to raise it to £12bn could represent a marked shift in the way Britain does aid.

What isn’t as well known is that preference is given to developing countries that struggle to otherwise raise finance. A worthy notion. But this also translates into finance being targeted towards those states most affected by fragility and conflict.

Such states need investment but how finance is injected into economies, sectors and business in such environments matters a great deal. As Alert highlighted in its negotiation guidance around the 2015 Addis Ababa Third Conference on Financing for Development, finance that ignores drivers of conflict, such as corruption, economic marginalisation and the power and influence that wealth brings has exacerbated conflict in a number of countries from DRC to Colombia, Myanmar to Mali. The price tag is high for failed investments in fragile contexts. You don’t just lose finance and capital, too often you lose lives. 

The World Bank has been grappling with how to best invest in fragile contexts for many years. In Alert’s report, Fragile reforms, we found that the Bank continues to improve and adapt its business model in fragile states but there is still work to do to institutionalise best practice. The progress it has made and the challenges that persist will hold important lessons for a CDC intent on scaling up in such environments.

Alert’s work with various companies over many years shows that business investment can both avoid conflict and also contribute to stability and peace. The question is how prepared investors, in this case the UK government and British people, are prepared to go the realise that outcome.

Moreover, if the UK government is serious about realising the ambitions set out in its Strategic Defence and Security Review and Aid Strategy for promoting greater stability overseas then it needs to write conflict issues into the CDC picture, starting with the Bill.

Thumbnail image: KX Studio (Creative Commons)